Supreme Court upholds first-sale doctrine in textbook resale case

Thai student's book-importing business was not a copyright crime.

The importation of copyrighted goods made abroad has been an increasingly contentious issue in recent years. Easy access to Internet resale markets like eBay and Amazon have made it possible for a new breed of entrepreneurs to buy low and sell high in a wide array of areas. The Supreme Court handed these resellers a major victory today, issuing a decision [PDF] that makes it clear that the "first sale" doctrine protects resellers, even when they move goods across national boundaries.

Those upstarts have peeved a lot of corporations, and some of them used copyright law to fight back. Textbook maker John Wiley & Sons sued a Thai student-entrepreneur named Supap Kirtsaeng, who had been buying cheaper (but non-pirated) versions of various textbooks in his home country, bringing them to the US, and selling them to his fellow students stateside on eBay. The price differentials were so big that there was quite a bit of money to be made; at trial, the publishing company's lawyers hammered home the fact that they had counted up $1.2 million in receipts over the life of Kirtsaeng's business.

Wiley argued those profits should be barred by copyright law. Their right to control prices abroad was actually part of their copyright grant, they argued. The textbook company won a jury verdict against Kirtsaeng, which was upheld by the US Court of Appeals for the 2nd Circuit, and Kirtsaeng appealed to the Supreme Court, arguing that his business was protected by the "first sale" doctrine.

Today's decision vindicates the "first sale" doctrine, which allows the owner of a particular copy of a work to do whatever she wants with it after purchasing it. It overrides first sale losses in both the 9th and 2nd Circuits and makes it clear that digital commerce can flourish in the Internet era, even when it crosses borders.

The 6-3 opinion was authored by Justice Steven Breyer, perhaps the justice most skeptical of intellectual property rights. The dissent was authored by Justice Ruth Ginsburg, who has long favored powerful copyright privileges. Justices Antonin Scalia and Anthony Kennedy also joined the dissent.

The decision throws out a $600,000 damages award that was granted to Wiley.

What is “lawfully made under this title?”

Section 109(a) of copyright law describes the first sale doctrine, which applies to any work "lawfully made under this title." The question in this case is the exact meaning of that phrase. The publishers argued for a "geographic" reading, meaning it actually applied to copyrighted works made in the US. Kirtsaeng argued for a "non-geographic" reading, suggesting that first sale applied to any goods that were "lawful," in other words, legitimate, non-pirated goods.

If the publishers' argument had been accepted, some of the results would have been dramatic. The first sale doctrine would basically stop existing for goods made outside the US, which would actually give corporations a strong incentive to move manufacturing abroad—surely not a result that Congress intended.

That possibility alarmed not just Internet companies like eBay, but also libraries, used book sellers, and museums. Libraries, for instance, would have been required to get permission to circulate many books that were printed abroad. While Wiley's lawyers argued that was part of a "parade of horribles" that hadn't happened in the 30 years that the geographical interpretation had been around, today's Supreme Court decision notes that those things actually have a very good possibility of happening, if the high court doesn't uphold first sale. "[T]he law has not been settled for so long in Wiley’s favor," wrote Breyer for today's majority. "The Second Circuit in this case was the first Court of Appeals to adopt a purely geographical interpretation."

At the end of the day, for the majority, this came down to an issue of consumers' rights. Breyer writes:

Putting section numbers to the side, we ask whether the “first sale” doctrine applies to protect a buyer or other lawful owner of a copy (of a copyrighted work) lawfully manufactured abroad. Can that buyer bring that copy into the United States (and sell it or give it away) without obtaining permission to do so from the copyright owner? Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner’s permission?

In our view, the answers to these questions are, yes.

Today's decision overrides two other interpretations of the issue proffered by federal appeals courts. The New York-based 2nd Circuit had sided with Wiley, in a decision that would have basically left goods made abroad unprotected by first sale. In California, meanwhile, the 9th Circuit crafted a somewhat less absolute view in Omega v. Costco, trying to create a situation where first sale protections would have kicked in after the first domestic sale. But that rule produced "still greater linguistic difficulty," in the Supreme Court's view. It was an attempt to split the baby with a "half geographical/half non-geographical interpretation" that ultimately made no sense.

The first sale doctrine is a doctrine that's too important to mess around with; it's a "common-law doctrine with an impeccable historical pedigree," in the words of today's opinion. The doctrine "frees courts from the administrative burden of trying to enforce restrictions upon difficult-to-trace, readily movable goods."

This is also a case where the majority clearly read the amicus briefs and took them to heart. A whole section of the opinion notes the objections of libraries, used-book dealers, retailers, museums, and technology companies. Copyrighted software present in cars today could have even prevented the resale, without permission, of used cars.

A concurrence signed by Justices Elena Kagan and Samuel Alito agrees fully with today's ruling, but it suggests that Congress should find a way to tweak the law to still allow the kind of market-segregation that the now-prevailing rule on first sale prohibits.

Dissenters: The “parade of horribles... is largely imaginary”

The dissent, signed on to by three justices, argues forcefully that copyright owners have a right to set international prices that must be protected by law. "Their ability to engage in such price discrimination, however, is undermined if arbitrageurs are permitted to import copies from low-price regions and sell them in high-price regions."

Congress didn't want to allow unauthorized importation, even of legitimate goods, and it wrote copyright law intending to give copyright owners a "potent remedy" against such importers.

Today's ruling limits the section of copyright law that grants an importation right (that's §602(a)(1) ) to near-insignificance, argue the dissenters. There are exceptions to that right that allow unauthorized, Kirtsaeng-style "gray market" importation "for certain governmental, personal, scholarly, educational, and religious purposes." Those exceptions make little sense without any strong importation right in the first place.

In the view of the dissenters, first sale should not apply to foreign-made copies, full stop.

As for the "parade of horribles" trotted out by Kirtsaeng's supporters, like shuttered libraries, "copyright law and precedent erect barriers" that will prevent such outcomes, writes Ginsburg. But her explanations for how the "horribles" will be avoided are not very reassuring. Museums, she notes, "can... seek the copy­right owner’s permission to display a work." And selling a work of art to a US museum "may carry with it an implied license to publicly display the work" in any case. Ginsburg also thinks the "implied license" situation would solve the problem of selling a used car with copyrighted software.

“First sale” overrides the importation right, for now

At the end of the day, this conflict stems from a set of copyright laws trying in vain to satisfy all parties. There's an "importation" privilege in copyright law that is fundamentally in conflict with first-sale, and the Supreme Court is trying to deal with the fallout. Today, first sale won out, but this is not a victory that is necessarily built to last. Between the three dissenters, and the Kagan-Alito concurrence suggesting that Congress change the law, that's five justices that believe copyright law should allow for price discrimination strategies to be enforced in court.

But while price discrimination is certainly lauded by the companies that rely on it, it's not at all clear that having courts perpetuate such pricing schemes benefits anyone beyond shareholders of those companies. This battle is sure to move to the legislature, with the content industries pressuring Congress to try to recover some of what they lost today. They will be opposed by a newly empowered coalition of retailers, tech companies, libraries, and consumer rights groups.